KPMG and one of its former senior auditors have been sanctioned by the UK’s accounting watchdog for “failings” during the audits of retail giant Conviviality.
Imposing a £3m fine, the Financial Reporting Council (FRC) identified numerous areas of misconduct in relation to the Big Four firm’s 2017 audit of the company, including a “failure to obtain sufficient appropriate audit evidence”.
Nicola Quayle, the partner in charge of the Conviviality audit, received a £110,000 fine and a severe reprimand.
“The audit failings in this case were serious and spanned several significant areas of the financial statements and related to a number of fundamental auditing standards,” said Claudia Mortimore, deputy executive counsel to the FRC.
“The sanctions reflect the seriousness of the failings.”
Also among the misdemeanours cited by the FRC were a failure to revise initial assessments of the risks of material misstatement to financial statements, a failure to apply sufficient professional scepticism in relation to the recognition of accrued franchise licence revenue, and a failure to adequately document audit procedures.
Conviviality was a major player in the UK retail market. Specialising in alcoholic drinks, it oversaw the Bargain Booze, Wine Rack and Bibendum chains, and supplied drinks to hospitality franchises such as JD Wetherspoon and Yates.
The company floated on the London Stock Exchange in 2013 and experienced a period of rapid growth before entering administration in April 2018.
Mortimore also noted that the “poor regulatory track record of each of the respondents” was a factor in determining the sanctions, with this being the latest in a series of blows to KPMG’s reputation as an auditor.
The firm is currently being investigated over claims that it misled the FRC by forging documents during checks of its Carillion audits.
Meanwhile, the FRC’s investigation of the Carillion audit is ongoing and could result in another fine.
Commenting on the Conviviality audit sanctions, Jon Holt, CEO of KPMG in the UK, said: “I’m sorry that our work wasn’t good enough in this instance. I am committed to resolving, and learning from, our past cases and this development marks another step forward in dealing with these matters. We have fully cooperated with the FRC throughout their investigation.
“We continue to invest significantly in our business, taking action to address the FRC’s findings and implementing our Audit Quality Transformation Programme, which includes comprehensive new training, controls and technology.”